On July 1, 2020, West Company purchased for cash, four $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. d. Record the receipt of interest on January 1, 2021. e. Record the sale of all of the bonds on January 2, 2021, for $41,525, eliminating the Fair Value Adjustment account balance. Prior to recording the sale, adjust the investment to fair value. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. nearest whole dollar.   Date Account Name Dr. Cr. d. Jan. 1, 2021   Answer Answer       Answer Answer e. Jan. 2, 2021   Answer Answer       Answer Answer             Jan. 2, 2021   Answer Answer       Answer Answer       Answer Answer

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.